Natural gas is used widely in Europe and Asia for heat, as it is here in the US. Last week, a consortium of natural gas producers met in Moscow. The goal of the meeting was to establish an OPEC-like cartel of gas producers who would control output. Although the meetings participants were quick to say that they do not intend to engage in price fixing, the keynote speaker, none other than Vladimir Putin, said "...despite the current problems in finances the era of cheap energy resources, of cheap gas, is of course coming to an end."

Russia is no stranger to throttling gas supplies in order to negotiate better prices. The Republic of Georgia can bear witness to that fact, having had their entire supply of Russian gas, which is used for heating homes there, cut off in the middle of the freezing winter. Now that winter is here again Russia is turning up the heat on the Ukraine by turning off their heat as well. Coincidentally, prior to Russia cutting off their gas, both Georgia and the Ukraine were actively courting the United States and have begun steps toward joining NATO. This makes the Russian bear and Vladimir Putin, in particular, very upset. The threat to the gas supply in Europe (which passes through the Ukraine via pipeline) has already caused a noticeable spike in oil prices. Keep your eye on the price at the pump and don't be surprised to see it climb a little bit. It shouldn't be anything like the $4/ gallon we saw in 2008, but the downward trend is likely to stop and reverse until the Ukraine gives in to Russian demands and the gas flows unimpeded again.

With a strong Russian leadership in a natural gas cartel, then, would we expect that policies and supplies would be formed without political motivation? Or would we expect, as Russia's recent actions with both Georgia and the Ukraine have shown, that gas supply would become a weapon to be used to help dictate trading and military policy to the European Union and other US allies? I'd bet on the latter.

As for the US, we need only take Putin at his word that gas prices will increase dramatically. Although the US is a major gas producer as well, global prices will dictate US domestic prices to a large extent. If you are considering converting to natural gas heat, think twice. If the new cartel has its way, it may not seem like such a good idea in the not too distant future. On the other hand, renewable energy sources such as wind and solar are much harder to monopolize and as prices for other forms of energy continue to rise, green energy will not only become more competitive, but will help provide stable energy prices that are too a large degree immune from artificial supply constraints devised by foreign cartels to drive up the price.

Author: Brad Sylvester